TRICKLE-DOWN ECONOMICS

The rapid economic growth of the past few years in Malta has created prosperity which has brought about an inevitable trickle-down effect.

Take the most obvious positives: more companies coming to Malta and boosting tax revenue. Thousands of foreigners renting properties and creating a source of income for their owners. A 17 per cent increase in population meaning 17 per cent more people to shop in supermarkets, to use mobile phones, to eat out in restaurants, and to fly in and out of the country – not to mention the increased number of relatives and friends who visit. Record-low unemployment meaning that those who wish to work can almost certainly find a job, while those who have a job are faced with various options if they wish to progress their career to achieve a better standard of living.

However, there are also negatives: the takeup of the housing stock for rentals has meant fewer properties for sale – and higher prices for those properties that make it onto the market. Higher rental prices is one of the factors that reduced the length of time that foreigners work here before moving on – as well as the lack of a school for their children, which is yet to materialise despite years of planning. And then of course, there are the social concerns: take, for example, the influx of foreign workers who are possibly being exploited by agents even before they land on the island to seek a better life for themselves and their families back home.

Those standing at arms’ length from partisan politics take a dispassionate view, using data gathered painstakingly over the years to flag the slightest movements in trend lines.

However, the truth is all too often buried in the political noise. To quote the immortal Dilbert cartoon: “Studies have shown that accurate numbers are not any more useful than the ones you make up.”

Perhaps that is an exaggeration, as the numbers quoted by the ‘nay-sayers’ and by the ‘ra-ra’ band are often correct – but the figures can be taken out of context, giving a very different spin to the facts.

So, what has the Central Bank of Malta come up with recently?

Studies, published in the Research Bulletin and in the Quarterly Review, delved into income and wealth inequality. Unfortunately, decades of political ideologies have failed to come up with a way to even out wealth equitably across society – but trying to do so remains a fundamental principle in many democracies, whether through fiscal means or by providing a social benefits’ safety net.

What is happening in Malta? The study found that in 2016, the households that earned most brought in 2.3 times as much as those at the median – a narrower gap than in 2010 when the ratio was 2.38.

However, this improvement needs to be further analysed to be fully understood. For example, the households which earn more than the median (those in the middleto-upper parts of the distribution curve) saw higher increases in their income than did those with lower incomes. To put it in simplistic terms, the poor undoubtedly improved their lot, but the richer got even richer. This widening of the gap between the bottom and the top of the statistics means that the Gini Coefficient, which indicates wealth inequality, increased slightly.

The Central Bank of Malta also looked at median gross income (i.e. before deductions for tax, social security etc.). In 2016, this stood at €25,417, an increase of €4,856 (23.6%) compared with 2010.

But there is another metric which is just as important to consider: liabilities. How comfortably off you are must be seen not only in the context of how much you earn but also in the context of how much you owe. The Central Bank of Malta study found that in this case, the inequality gap has narrowed, with the Gini Coefficient dropping from 0.682 in 2010 to 0.559 in 2016. This is partly the result of easier housing loans, which had particularly helped those in the middleliability bracket.

The median mortgage debt-to-household income rate stood at 221.7% in 2016, up 8.8% from the previous survey in 2013. This is due to the higher mortgages being taken on – which partly reflect both higher property prices, as well as longer repayment periods.

What happens when you look at the net wealth? Here the picture once again shows a widening gap, with the Gini Coefficient rising from 0.566 to 0.598. The high level of home ownership (either outright or with a mortgage) in Malta – 80.6 per cent – helps to ensure that real assets (including property and self-employed businesses, valuables and vehicles) are more equally distributed across households than are purely financial assets like deposits and investments. However, the lower income households still appear to be finding it more challenging to acquire real assets – like houses – than those with higher incomes.

…THOSE AGED OVER 65 DID NOT EXPERIENCE ANY INCREASE IN INCOME BETWEEN 2010 AND 2016

Interestingly, the survey has noted that more and more households are earning more than they spend, with the ability-to-save showing that 45.6% of households can save, up from just 23.7% in 2010.

Looking at household wealth, the share having some form of real asset has gone up, from 93.3% in 2013, to 95.4% in 2016 – with 78% of these assets being property.

The survey also analyses the households by age and found that those aged over 65 did not experience any increase in income between 2010 and 2016. What does this mean? Although old page pensions have increased in line with the cost of living, this could indicate that they have not kept up with household income.

Given the natural cycles of family and work life, there were no surprises when it came to the analysis by age, with net wealth increasing as people get older, peaking between 45 and 54 at around €275,000. Across all households, it stood at €236,529. Median net wealth rose by 17.5% since 2010.

Investing in your own home seems to have a very positive impact on future wealth, with the survey noting that households that can save up enough money to partly or fully finance their home have a high probability of being in the wealthiest brackets as they get older.

They say that even the devil can quote statistics, but there is no doubt that numbers – especially when collected according to a rigid methodology based on proper research and modelling – are the pieces of the jigsaw that build up into a clearer picture.